Among the prospective mistakes piling up at the intersection of high gasoline prices and US politics, some rotten ideas deserve more attention than others. A proposal needing attention is the energy policy described by Sen. Hillary Rodham Clinton (D-NY) at the National Press Club May 23. It has a chance of becoming law.
So far, congressional responses to fuel-price discomfort have been rushed, piecemeal products of institutional misapprehension: a cash rebate for consumers here, a federally owned refining network there, and the usual televised scoldings of oil companies and threats of punitive taxation. The initiatives have looked frantic, disjointed, and vindictive. Until now, therefore, it has been reasonably safe to think lawmakers might exhaust their indignation and feel no need to follow through.
But Clinton has pulled the folly together into a package that can be described as comprehensive and bipartisan. Those words cast a spell in Washington, DC. They convey a license to steal.
Tax and spend
Legislative larceny is in fact part of the Clinton plan. A special tax would hit oil company profits, the proceeds flowing into a “strategic energy fund.” Clinton reckons that 2 years of the new tax plus repeal of “tax breaks” would yield $50 billion for politicians to spend on energy projects. Oil companies could escape the tax to the extent they invested in politically approved energy forms instead of oil and gas. Some of the tax money would be reserved for energy research and development, some earmarked for cellulosic ethanol. And there would be mandates: for use of politically blessed vehicles and fuels by the federal government, for use of specified percentages of renewable energy in the generation of electric power, for installation of ethanol pumps at service stations, for large tests of carbon-dioxide sequestration.
The plan is indeed comprehensive. And it’s bipartisan inasmuch as Clinton expressed support for proposals by two Republicans: Sens. John McCain of Arizona and Richard Lugar of Indiana. On just such comprehensive bipartisanship, Congress assembled the Energy Policy Act of 2005, the costs to consumers of which are now hitting hard.
In keeping with congressional habit, the Clinton plan takes wrong steps for bad reasons. It begins with the discredited assumption that the government knows best which energy forms people should use. It deflects investment from low-dollar, high-btu energy forms toward high-dollar, low-btu alternatives. It equates federal spending with problem solving.
The US has made all these mistakes before. Clinton’s plan just retreads colossal government failures of the 1970s and 1980s, in particular the Windfall Profit Tax and Synfuels Corp. Those moves stunted investment in US oil and gas production and wasted taxpayers’ money, all because the government presumed to know best about fuel choice.
Clinton, of course, cozies up naturally to faith in the state. In doing so she repeats an assertion that comes up too frequently without challenges these days. “We worked our way out of the last big energy crisis in the ‘70s and ‘80s almost entirely through conservation,” she told the press club. “From 1977 to 1985, our economy grew by 3%/year while oil used dropped 2% each year, driven by the efficiency of our vehicles, our appliances, our businesses.” By “conservation” and “efficiency,” she means mandates such as corporate average fuel economy (CAFE) standards.
Role of price
While vehicle mileage limits probably helped, the observed conservation of the period she cites in fact resulted mainly from the unraveling of government controls on US oil prices. And nostalgia for CAFE standards must be tempered by recognition that the heavy passenger vehicles now scorned for their fuel use grew out of CAFE exemptions enacted to console pet political constituencies. Furthermore, the notion that the US worked out of the earlier crisis “almost entirely” through conservation overlooks 2 million b/d of domestic supply that began entering the market in 1977 as the Alaskan pipeline came on stream.
Proponents of government activism in energy don’t like to acknowledge how price affects consumption and how supply affects price. They don’t trust markets. That’s why their policies usually fail. It’s why their manipulations always hurt consumers.
